Worked example 4: Future value annuities

QUESTION
Ciza decides to start saving money for the future. At the end of each month she deposits
R 900 into an account at Harringstone Mutual Bank, which earns 8,25% interest p.a.
compounded monthly.
1. Determine the balance of Cizas account after 29 years.
2. How much money did Ciza deposit into her account over the 29 year period?
3. Calculate how much interest she earned over the 29 year period.
SOLUTION
Step 1: Write down the given information and the future value formula
F =
x[(1 +i)
n
1]
i
x = 900
i =
0,0825
12
n = 29 12 = 348
Step 2: Substitute the known values and use a calculator to determine F
F =
900

(1 +
0,0825
12
)
348
1

0,0825
12
= R 1 289 665,06
Remember: do not round off at any of the interim steps of a calculation as this will
affect the accuracy of the nal answer.
Step 3: Calculate the total value of deposits into the account
Ciza deposited R 900 each month for 29 years:
Total deposits: = R 900 12 29
= R 313 200
Step 4: Calculate the total interest earned
Total interest = nal account balance total value of all deposits
= R 1 289 665,06 R 313 200
= R 976 465,06
112 3.3. Future value annuities